Designing Context-Based Marketing: Product Recommendations under Time Pressure

57 Pages Posted: 23 Nov 2014 Last revised: 27 Apr 2020

See all articles by Kohei Kawaguchi

Kohei Kawaguchi

Hong Kong University of Science and Technology

Kosuke Uetake

Yale School of Management

Yasutora Watanabe

University of Tokyo - Graduate School of Economics

Date Written: April 25, 2020

Abstract

We study how to design product recommendations when consumers' attention and utility are influenced by time pressure---a prominent example of the context effect---and menu characteristics, such as the number of recommended products in the assortment. Using unique data on consumer purchases from vending machines on train platforms in Tokyo, we develop and estimate a structural consideration set model in which time pressure and recommendations can influence attention and utility. We find that time pressure reduces consumer attention but increases utility. Time pressure moderates the effect of recommendations for the attention of both recommended and non-recommended products, and utility for recommended products. Moreover, the number of total recommendations increases consumer attention in general, but in a diminishing way. In our counterfactual simulations, we find that the revenue-maximizing number of recommendations decreases with time pressure, and that optimizing recommending products to accommodate time pressure by a greedy algorithm increases total sales volume by 3.7% relative to the actual policy, 0.6% points more than traditional consumer-segment-based targeting policy. This effect is larger than 10% price discounts, which increases the revenue only by 0.4% at the margin.

Keywords: Consideration Set, Brand Choice, Advertising, Menu Dependence

Suggested Citation

Kawaguchi, Kohei and Uetake, Kosuke and Watanabe, Yasutora, Designing Context-Based Marketing: Product Recommendations under Time Pressure (April 25, 2020). Available at SSRN: https://ssrn.com/abstract=2529294 or http://dx.doi.org/10.2139/ssrn.2529294

Kohei Kawaguchi

Hong Kong University of Science and Technology ( email )

6070 LSK Building, HKUST
Clear Water Bay
Kowloon
Hong Kong

Kosuke Uetake (Contact Author)

Yale School of Management ( email )

135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States

Yasutora Watanabe

University of Tokyo - Graduate School of Economics ( email )

Tokyo
Japan

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